Dull Performance Shakes Up Sharper Image

To cut expenses, San Francisco-based Sharper Image Corp. has reduced its corporate work force by 20% and its retail work force by 12%, according to director of investor relations Tersh Barber.

Barber said the workforce reductions occurred through a combination of layoffs, retirements, and positions left unfilled. “The job attrition occurred in past six to nine months,” Barber said. The layoffs occurred in January; he wouldn’t say how many people had been laid off. The cataloger/retailer of consumer electronics and gifts had roughly 2,800 employees at the end of fiscal 2004.

Among other cost-cutting measures announced March 27 was a 50% reduction in pay for founder/CEO Richard Thalheimer. The entire board of directors and several management employees suffered salary cuts as well. In addition, the company has budgeted a 30% reduction in advertising for fiscal 2006. It will cut catalog circulation 30% and circulation of single-product solo mailers 40%, as well as reduce its spending on infomercials 25%.

And whereas Sharper Image has opened 28 new stores in 2004 and 19 last year, this year it expects to open six to eight. Its capital expenditures budget was slashed from approximately $39 million in 2005 to $12 million-$15 million. The company’s annual sales increased from $523 million in 2002 to $755 million in 2004, but net income during that period fell from $15.2 million to $14.7 million, after reaching $23.1 million in 2003. Sharper Image hasn’t yet released its fiscal 2005 results, but year-over-year monthly sales continue to plummet. For the month ended Feb. 28, net sales were $30.5 million, down 33% from $45.4 million for February 2005. Direct marketing sales (including wholesale) for the month sunk 45%, to $6.7 million from $12.2 million; Internet sales dropped 32%, to $4.7 million.

That followed an equally disappointing January: Net revenue for the month ended Jan. 31 was $39.2 million, down 20% from the previous January. Direct marketing sales slipped fell 36%, to $7.5 million; Web sales tumbled 20%, to $7.8 million.

In announcing the cost-reduction measures, Thalheimer said in a statement, “We are maintaining intense efforts on good merchandising, marketing, and the gauging of customers’ tastes and demands. We are focused on introducing many new products that we believe will be attractive to our customers.”

Meanwhile, New York-based Knightspoint Group, which owns 12.8% of Sharper Image, wants to replace the company’s seven-member board of directors, including Thalheimer and Thalheimer’s father. The investment firm sent a proxy solicitation regarding a new board earlier this month.

Knightspoint also proposed overhauling Sharper Image’s business plan. Among its suggested changes: cutting and redirecting marketing spending, deferring store expansion, eliminating significant quantities of slow-moving and obsolete inventory, adjusting executive compensation, and overhauling the product development process—many of which Sharper Image announced this week.

“It has been two weeks since we received notice of a proxy solicitation from the Knightspoint Group to replace our current board of directors and of their concerns regarding the company’s strategic direction,” Thalheimer said in the March 27 statement. “I respect the point of view that a strong and independent board is a vital asset and I am always interested to hear new and positive contributions to the company’s strategy. Accordingly, we are giving very serious attention to the Knightspoint proposal and their points of view.”

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